Three Essays On Financial Contracting

In these essays, I examine the characteristics of financial contracts around Chapter 11 bankruptcy. In the first essay, I document significant changes firms make in the type and characteristics of its debt and equity securities during bankruptcy. The changes I find indicate that firms are using Chapter 11 to increase their financial flexibility after emergence. In the second essay, I compare the characteristics of warrants issued by firms during initial public offerings with those of warrants issued by firms emerging from bankruptcy. I show that the characteristics are very different for the warrants issued in each category. Warrants issued by firms emerging from Chapter 11 tend to have very little managerial flexibility, and are instead designed to placate junior creditors to allow a faster emergence from bankruptcy. In the third essay, I examine the financial covenants and restrictions in debt securities issued shortly after emerging from chapter 11. I find the firms with more covenants and restrictions are less likely to refile for bankruptcy.